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Overview of taxes in Europe

Kemal Nicholson
09 September 2021

The European Union (EU) consists of 27 member nations, which aim to operate under a single market in order to streamline the flow of goods, services, and capital. Of these 27 countries, 19 have given up their individual national currencies and replaced them with a common legal tender – the Euro.

The financial framework throughout the EU is one of the most complex and comprehensive regulatory systems in the world. It has provided the roadmap for free trade and economic growth. This complex framework is impressive not only for regulating the financial service sector throughout the union, but that it is also able to incorporate a multitude of tax structures of the affiliate states. Each nation has its own tax framework and they must work in total alignment with EU standards and measures of safe financial practice and anti-money laundering regulations.

Overview of taxes in Europe — Migronis

EU law regarding taxes

Tax rates in Europe and the EU are largely comprised of direct & indirect taxation. Each nation independently defines the various elements of direct taxation such as taxable income, average tax rates, and minimum tax threshold. This results in each country having autonomy in developing its own national tax-related frameworks and rates. However, there is a common standard and understanding amongst nations who have a mutual objective of preventing double taxation and tax evasion.

In the case of indirect taxation, the European Commission does oversee taxation policies that are related to business and trade. The primary objective of this streamlined economic system is the free flow of resources. Another objective of these policies is to ensure a level playing field is created for all businesses that operate within the EU. Finally, the Commission’s oversight also ensures that businesses, employees, and other citizens in the EU are not subject to any tax inconsistencies.

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Personal Income Tax Rate in Europe

Income tax rates in the EU are not standardized across all its member nations. The personal income tax slabs are set individually by each nation and subsequently that revenue is also spent autonomously by their government. Some nations have flat rates while others adopt sliding scales.

A majority of the EU countries have a progressive or marginal tax structure, which means that the income tax rate increases or decreases depending on the incomes generated. Therefore, a fair balance of the tax burden is borne by those who can afford it. Ultimately, it is the Governments who are generally able to earn more tax revenue through this income tax structure.

Despite the EU being a largely well-developed union consisting of a lot of nations, there are a few in particular that lead the pack in terms of development and standard of living. Research shows that the more developed nations have higher tax slabs, while the slightly underdeveloped ones account for reduced tax rates in Europe.

Income taxes in Europe by country

Personal income tax rates for EU nations are not uniform across the board. The EU is designed as a free-flowing zone and hence there is no specific rule for EU nationals who reside outside of their home country. Usually, however, the country of residency is where taxes are levied on total world income. An individual is deemed to be a tax resident when they spend more than six months of a year in a country.

Below are the maximum personal income tax rates as of 2021 for every EU state (in descending order):

  1. Finland – 56.95%
  2. Denmark – 55.90%
  3. Austria – 55.00%
  4. Sweden – 52.90%
  5. Belgium – 50.00%
  6. Slovenia – 50.00%
  7. Netherlands – 49.50%
  8. Ireland – 48.00%
  9. Portugal – 48.00%
  10. Spain – 47.00%
  11. Luxembourg – 45.78%
  12. France – 45.00%
  13. Germany – 45.00%
  14. Greece – 44.00%
  15. Italy – 43.00%
  16. Cyprus – 35.00%
  17. Malta – 35.00%
  18. Poland – 32.00%
  19. Latvia – 31.00%
  20. Croatia – 30.00%
  21. Slovakia – 25.00%
  22. Czech Republic – 23.00%
  23. Estonia – 20.00%
  24. Lithuania – 20.00%
  25. Hungary – 15.00%
  26. Romania – 10.00%
  27. Bulgaria – 10.00%

Apart from the above mentioned EU states, below is a list of countries along with their maximum personal income tax rates, which are not part of the EU but are European nations:

Iceland- 46.25%; Switzerland- 40.00%; Norway- 38.20%; Liechtenstein- 22.40%; Ukraine- 18.00%; Belarus-13.00%; Moldova- 12.00%; Bosnia and Herzegovina- 10.00%; Kosovo- 10.00%; Macedonia- 10.00%; Serbia- 10.00%; Montenegro- 9.00%

Overview of taxes in Europe — Migronis

Corporate Income Tax Rates in Europe

European countries, just like many others, generate a large sum of their economic income through Corporate income tax. Corporate income tax rates are determined by which nation the company is based in (where they post-revenue) and their tax levy.

The EU nations and the Organisation for Economic Co-operation and Development (OECD) work together in order to systematize corporate income tax rates and economic policies. Due to the large discrepancies in how corporate income taxes are levied by member states, the OECD works alongside the European Commission, and other European nations, in order to ensure that certain states are not providing favorable taxation benefits to certain companies. However, countries such as Ireland and Luxembourg continue to have reduced corporate income tax rates and are used as tax havens by big multinational corporations. Companies such as Apple and Fiat have been beneficiaries of having entities in Ireland and Luxembourg’s reduced corporate income tax rates

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Corporate tax rates in Europe by country

Before delving into the various corporate income tax rates, it is important to understand the difference between statutory and effective rates. The statutory rate refers to the rate that is imposed, whereas effective rate is the eventual ‘reduced’ tax that is paid by companies after certain exemptions are met. Thus research shows that in many EU countries, the statutory tax is, on average, significantly higher than the effective tax.

Below is a list of statutory corporate tax rates by EU member states as of 2021 (descending order):

  1. Malta – 35.00%
  2. Germany – 30.00%
  3. France – 26.50%
  4. Austria – 25.00%
  5. Belgium – 25.00%
  6. Netherlands – 25.00%
  7. Spain – 25.00%
  8. Luxembourg – 24.94%
  9. Italy – 24.00%
  10. Greece – 24.00%
  11. Denmark – 22.00%
  12. Portugal – 21.00%
  13. Slovakia – 21.00%
  14. Sweden – 20.60%
  15. Finland – 20.00%
  16. Estonia – 20.00%
  17. Latvia – 20.00%
  18. Czech Republic – 19.00%
  19. Poland – 19.00%
  20. Slovenia – 19.00%
  21. Croatia – 18.00%
  22. Romania -16.00%
  23. Lithuania – 15.00%
  24. Ireland – 12.50%
  25. Cyprus – 12.50%
  26. Bulgaria – 10.00%
  27. Hungary – 9.00%

Apart from the above mentioned EU states, below is a list of countries along with their statutory corporate income tax rates, which are not part of the EU but are European nations:

Iceland- 20.00%; Switzerland- 14.93%; Norway- 22.00%; Liechtenstein- 12.50%; Ukraine- 18.00%; Belarus-13.00%; Moldova- 12.00%; Bosnia and Herzegovina- 10.00% ; Kosovo- 10.00%; Macedonia- 10.00%; Serbia- 15.00%; and Montenegro- 9.00%

In summary, the EU nations do levy a corporate tax, which on average is comparatively lower than other nations’ rates across the world. Amongst the European OECD countries, the average corporate tax paid is 21.70 percent, which, research shows, is quite reduced as compared to world standards.

Overview of taxes in Europe — Migronis

Wealth Taxes in Europe

The topic of Wealth Tax is a controversial one and most European nations have abolished it completely. In Europe, there is a Net Wealth tax and a Wealth Tax on selected assets.

The net wealth tax is based on all the net assets owned by an individual at the end of every year, rather than on incomes or revenue earned. Norway, Spain, and Switzerland still have a net wealth tax, whereas France and Italy have a comparatively reduced wealth tax system on select or limited asset classes.

Net Wealth Taxes

Austria, Denmark, Finland, Germany, Iceland, Luxembourg, and Sweden are European countries that have recently gotten rid of wealth taxes.

Below is a summary of net wealth taxes in the only 3 European Countries which impose them:

  1. Norway has a wealth tax of 0.85 percent on an individual whose worldwide net wealth exceeds €152,000
  2. Spain has a progressive net wealth tax structure, with rates ranging from 0.20 percent to 3.75 percent on individuals whose average net wealth exceeds €700,000. Non-residents in Spain must only pay this tax on local assets owned, while residents are subject to taxation on their international wealth.
  3. Switzerland has a progressive net wealth tax. There is a marginal variation in rates depending upon which district the individual is a resident of. The tax is levied on all world income, except on real estate and any foreign company which an individual may own.

Wealth Taxes on Selected Assets

France, Italy, and Portugal are European countries that exclusively levy a wealth tax on selected assets above a certain threshold.

Below is a summary of these countries regimes on wealth tax:

  1. France, in 2018, decided to abolish its net wealth tax system and reached a compromise that reduced the tax burden to high net worth individuals. This new regime taxed French residents on international real estate assets which are valued at €1.3 million or higher. Non-tax residents however are subject to taxation on real estate assets in France which are valued at or higher than €1.3 million. Rates can go as high as 1.5 percent depending upon the net value of the real estate asset.
  2. Italy has a wealth tax on selected assets regime that is unique when compared to any other country. The country charges a tax of 0.20 percent on assets held abroad that do not have any lineage to Italy. There is also a tax of 0.76 percent on foreign real estate that is owned by Italian tax residents.
  3. Portugal has a national wealth tax which is levied on properties valued at a minimum threshold of €600,000 and above. This tax affects individuals regardless of their residency status in Portugal. For individuals, this tax rate is 0.70 percent and corporates pay a reduced tax of 0.40 percent. Individuals or corporates who own property worth over € 1 million are subject to a flat taxation of 1 percent.
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Which European country has no taxes?

Although the concept of no taxes is non-existent in any European nation, Monaco has not levied income tax on its residents since 1869. Monaco, therefore, is home to some of the world’s wealthiest businessmen, professionals, and celebrities. In order to become a resident in Monaco, one has to open a bank account and make a € 500,000 bank deposit, and either purchase or rent a real estate property. There is also residency requirement of at least three months per year in order to become a tax resident on the island.

Which country has the lowest tax rate in Europe?

Montenegro, although not part of the EU, has the lowest personal income tax rate of 9 percent. When it comes to corporate tax, Hungary and Bulgaria have a limited tax rate of 9 and 10 percent respectively. However, Ireland has a tax rate of 12.50%, making it one of the most popular destinations for big corporations to establish their entities.

Which EU country has lowest taxes?

Bulgaria has an income tax rate of 10 percent, which makes it one of the most tax-friendly countries in the EU (and the world!). Corporate taxes are also levied at 10 percent.

Which country has the highest income tax rate in Europe?

Finland has the highest statutory personal income tax rate of 56.95 percent.

Which country has the highest corporate tax rate in Europe?

Malta levies one of the highest corporate tax rates in the world at 35 percent on any company that operates on their island.

Which country has the lowest corporate tax rate?

Hungary has an income tax rate of nine percent, which is the lowest in the EU. Montenegro, although not yet a part of the EU has a low-income tax rate of nine percent.

Which European countries have a wealth tax?

Of all the European countries, only Norway, Spain and Switzerland have a net wealth tax that is levied on the total assets owned by an individual. France, Italy, and Spain on the other hand, have a wealth tax that is to be paid on selected assets only.

Over the last few years, Austria, Denmark, Finland, Germany, Iceland, Luxembourg, and Sweden have removed wealth taxes completely.

Is there a standardized VAT rate in Europe?

According to EU law, there is a standardized Value Added Tax (VAT ) rate of 15 percent in the Euro Zone. VAT rates can be reduced to 5 percent depending upon the product or service. VAT is a very common taxation system that is a practice around the world. These rates are charged to a customer on the purchase of a commodity or service from a company.

Does the EU have a common social security law?

Each EU country has their own social security law. However, they work in tandem to ensure that individuals residing in various EU countries do not lose their social security benefits. Under a common EU law, individuals can only be subject to one country’s social security benefits at a time. Therefore, social security contributions must be made where the individual works. These social security contributions must be made by both employers and employees and the rates of contribution depend upon each member state.

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